*AV* - Sorry for the delay, my wife was sick this week and I barely kept my other endeavors above water.
Boy, when you ask a question, you really ask the tough ones. I spent some time on this before posting a reply tonight because there is more here than meets the eye.
First, VYTL is right up an alley we are trying to emphasize (telecom, wireless, networking, etc.) but must admit this was not a stock we had in our universe or were looking to rotate into the universe. So we did some preliminary research. All of this information is probably already known to you, but I am repeating it so you have the background data that helped in the decision making process.
Current price is close to $2 below the price on the day your message was posted. Therefore, as a good Monday Morning Quarterback, this stock was not a good investment when you asked about it. At roughly $7.25 on Friday, we see a few anomalies.
Book Value per share (most recent quarter): $5.07
Nice Book value relative to current price.
Earnings per share (trailing 12 months): -$10.81
Earnings per share (most recent quarter): -$3.04
Wall Street is not particularly enchanted with companies that are losing money in the current market environment.
Cash per share (most recent quarter): $14.78
Whoa, a $7 stock with $14.78 cash per share. This is too good to be true, and it is when we factor in the burn rate each quarter. We have to assume this cash is depleted by at least $3 per quarter leading us to the conclusion they have 5 quarters of cash before they are screwed. Therefore, we need to see if the company is turning a corner.
Return on Assets (ttm): -17.97%
Return on Equity (ttm): -167.16%
This stinks to high holy hell and is discouraging, even though they must run this way as they expand their global infrastructure. however, there comes a point when the infrastructure needs to start paying off relative to the investment made. we see no signs of that see
Shares Short: 8.92M
Percent of Float: 27.6%
Shares Short (Prior Month): 4.35M
While a case can be made that eventually the short sellers will have to cover their shorts or a short squeeze could be entertained, it needs to be noted that the short level has doubled from one month to the next and the stocks has dropped dramatically. the shorts are in charge these days and we have no idea when the tables will be turned. As the stock gets lower and lower, it does become attractive since we do not believe the company will go bankrupt. If we assume it will not go to zero, we have to assume that at some point, someone may step in with a takeover bid that will put the short sellers at a disadvantage. However, considering the market traders are extremely negative on this company, I see no reason to rush to this stock yet. If we estimate a price at which the last shares were shorted a month ago to this month, I would suggest that $8 would be a safe entry point once we see the stock reverse to the upside.
What I mean is that IF you are so inclined, there is no real reason to rush into this investment until it rebounds to $8, since there will still be enough upside to generate respectable gains. Until then, why chance it. Should VYTL hit a new low, below $6.75, I might lower the entry consideration to $7.50 to $7.25.
Market Capitalization: $367.6M
Shares Outstanding: 50.5M
Float: 32.3M
Nice float to play games with by the shorters and a nice float relative to average daily trading volumes (1.8M per day)
Insider Ownership: 36% Institutional: 50% (78% of float)
We are at the whim of the institutions for half the shares and the shorters for 25% of the shares. We are sure there is some overlap but probably with hedge funds leading the way.
Background: Viatel offers its customers a wide range of voice and data services over a single integrated network. VYTL is the builder-owner-operator of Europe's most advanced, multi-conduit, continuously upgradable fiber optic broadband network; and, the region's premier provider of cross-border, broadband-based solutions to end-users. For the six months ended 6/30/00, revenues totaled $383.7 million, up from $130.3 million. Net loss applicable to Common totaled $265.6 million, up from $83.9 million. Revenues reflect increased billable minutes and higher capacity sales. Net loss reflects increased depreciation due to an increase in gross property and equipment and increased interest expense.
As you will see by the most recent earnings announcement, the company is doing a great job of increasing revenues, but it comes with widening losses. Eventually depreciation will go away, but that is still a few years down the road. Revenues tripled but so did the losses for the two 6 month periods.
Recent Earnings Announcement: For the 3 months ended 09/30/2000, revenues were $200.5M; after tax earnings were -$143.0M.
Quarterly revenues are up and so are the losses.
Revenue for the quarter increased by 151% to $200.5 million compared to $80.0 million in the third quarter of 1999. Gross margin improved to 28% from 26% for the corresponding quarter last year.
VYTL is also nearing completion of the construction of their 10,400 route kilometer Pan-European multi-duct network and the Yellow Submarine trans-Atlantic cable that is being constructed in partnership with Level 3 and Global Crossing. When combined with the seven metropolitan fiber networks
we will begin lighting in early 2001, no company is better positioned than Viatel to provide building-to-building, cross-border connectivity and the value-added services that customers are increasingly demanding.
Revenue from advanced services, including IP-VPNs, frame relay, ATM and Internet access, was $24.6 million in the quarter, compared to $1.9 million in the third quarter of 1999 and $23.9 million in the second quarter 2000. Revenue from capacity sales was $41.4 million compared to $25.1 million in the third quarter last year and $41.6 million in the second quarter 2000. The Company's firm backlog for capacity sales, broadband products and related services totals more than $200 million.
Revenue from communications services, which includes basic services (consisting of long distance, 800 service, conference calling and carrier services) and advanced services increased 190% to $159.2 million compared to $55.0 million in the same quarter in 1999 and $161.5 million in the second quarter 2000.
Net loss attributable to common stockholders was $155.9 million, or ($3.09) per share, for the third quarter
of 2000, compared to $48.2 million, or ($1.48) per share, for the third quarter of 1999. Substantially all of
the increase in the Company's net loss for the quarter was due to increased interest expense, depreciation and
amortization expense associated with our network infrastructure initiatives, and goodwill and other intangibles associated with the Company's acquisitions.
At September 30, 2000, the Company had gross property, plant and equipment of $1.5 billion. It also had $579.6 million of cash, cash equivalents, marketable securities and cash securing letters of credit for network construction. The Company expects gross property, plant and equipment to approximate $1.7 billion by year-end.
The company is repositioning itself and expects to turn a corner over the next year, especially as the optical networking and high end IP stuff rolls out through its global network. While we believe this is entirely possible, given their state of the art equipment and initiatives, they are still burning money faster than they are taking it in.
I see nothing compelling right now with this company, and believe you have time to wait for a bottom or some sign they are really turning a quarter. The price trend is still negative and over the past 3 months it traded as high as $17, but was as high as $75 over the past year. Waiting for the company to prove itself and turn a corner seems prudent, other than an obvious takeover play. At current levels, waiting until we see the upside of $8-$10 still leaves considerable gains to be made if everything goes as planned by the company.
As for me, I will have it on radar but I am not interested right now. when the short sellers start covering their shorts, I might be inclined to dip my toes into the waters.
Andrew |
